Tax deduction guide

Are business gifts tax deductible?

Tax year 2026 · Updated October 15, 2026

When it counts

  • A gift to a customer, a prospect or a business partner. The limit is $25 per person per year, however many gifts you give them.
  • Incidental costs. Engraving, gift wrapping, packaging, insuring and mailing are not part of the gift's cost for the limit, so they are deductible in full.
  • Branded promotional items. An item that costs $4 or less, has your business name permanently on it and is handed out widely is advertising, not a gift. The $25 limit does not apply, and it goes on Schedule C, line 8.
  • Gifts to employees. They are generally deductible. Cash and gift cards are taxable wages to the employee. A small non-cash item of little value can be tax-free to them.
  • Other business gifts go on Schedule C, line 27b, other expenses.

When it doesn't

  • Anything above $25 per person in a year. The extra is not deductible.
  • Gifts to family and friends. Those are personal.
  • A gift to a company that is meant for one person or a small group. It counts as a gift to those people, and each one has the $25 limit.
  • A gift to a member of a client's family. It is generally treated as a gift to the client.

A worked example

You send one client a gift basket. The receipt is $112.00. That is $100.00 for the basket and $12.00 for wrapping and shipping.

  • Gift itself: $100.00, but the limit is $25.00 for one person
  • Wrapping and shipping: $12.00, outside the limit
  • Your write-off: $25.00 plus $12.00 = $37.00

The IRS gives a similar case. Three gift baskets that cost $80 each, taken home by three executives, come to $240 in all. The limit is $75, which is $25 times 3.

Spread a $100.00 gift across four clients at $25 each, and all $100.00 is deductible.

What records to keep

  • The receipt, with the date and amount.
  • Who got the gift.
  • Why you gave it, and how you know them.
  • What part of the receipt was wrapping or shipping.

Common questions

Is the $25 limit per gift or per person?

Per person, per year. Three gifts to the same client in one year share one $25 limit.

Are holiday gifts to employees deductible?

Generally yes. Cash and gift cards are taxable wages to the employee. The $25 limit is for gifts to customers and other business contacts.

Do branded pens and mugs count as gifts?

Not if each one costs $4 or less, has your name permanently on it and is handed out widely. Those are advertising.

Sources

Also cited by the WriteOff rules: 26 U.S.C. section 274 and Treas. Reg. section 1.162-1.